2019 tax bills

We need government to act to restore growth in incomes and spending

Recent news on Australia’s economic outlook has been worrying. The new Government is being asked to do more to help the economy, including using ‘fiscal policy’, for example spending on services, investing in infrastructure and cutting taxes.

More must be done right now to lift growth in incomes and spending on goods and services across the economy out of the doldrums, and to generate more jobs. We need the Government to spend on the right things to support growth and improve economic opportunities for people in the long-term.

So far, the Government’s main response is tax cuts

So far, the Government’s priority is its tax cut package, which it insists the Parliament passes in full. Although the first stage of those tax cuts mainly go to middle income earners and would provide a timely economic boost, the other two stages are scheduled for 2022 and 2024, at a time when no one knows what state the economy will be in.

The later stages of the tax cut package are inequitable and costly, putting future services at risk

The unlegislated part of the first stage – a tax offset for middle-income earners this year, would have a modest cost of around $4 billion.

The unlegislated part of stage 2 (announced in the 2019 budget), which mainly goes to high income earners in 2022, is likely to cost around $6 billion though the government has not released its own estimates.

Stage 3, which mainly goes to high income earners in 2024, would cost around $12 billion in that year (again, no estimate has been published by government).

Including all stages, the tax cuts disproportionately benefit high-income individuals and households:

• Most individuals on $30,000 or less, and the lowest 30% of households, do not benefit from the tax cuts because their taxable incomes are too low to pay income tax.
• A middle income-earner on $50,000 gains $1,205.
• A high income-earner on $200,000 gains $11,640.

If the entire tax cut package is passed, it will cost the budget about $35 billion in 2024 – a lot of revenue lost for a country that is already the 7th lowest-taxed country in the OECD.

ACOSS has consistently raised concerns about the expenditure forecasts in the 2019 budget, which have real growth in funding for payments and services falling by half to a 50 year low of 1.3% per year, after inflation. The government’s capacity to maintain a budget surplus and deliver up to $35 billion in tax cuts, depends on a persistent python-squeeze on spending, including just 0.7% annual growth in health funding (despite an ageing population) and 1.8% in social security and welfare funding (despite the NDIS).

It also depends on medium-term budget projections for the economy to grow by 3% a year in 2022, wages to grow by 3.5%, inflation to jump to 2.5%, and unemployment to hold at 5%.

If these budget projections prove unrealistic, there is a serious risk of more harsh spending cuts to make room for tax cuts legislated years in advance.

Other policies are likely to be more effective

We also want the Government to use the social security system as a key ‘fiscal policy’ lever. The first obvious step here would be to Raise the Rate of Newstart and related allowance payments such as Youth Allowance, which would lift consumer spending in the households and regions most affected by any economic downturn. Unlike tax cuts for people with higher incomes, those who benefit from an increase in these payments would spend it straight away on essentials like rent and food.

A major social housing infrastructure package would have strong impacts on employment and consumer spending in the short and medium term, and could be implemented more quickly than many large-scale public infrastructure projects such as highways.

Investment in renewable energy sources, and energy efficiency for households and business, would grow local economies and strengthen job opportunities.

Importantly, all of these policies would bring long-term economic and social benefits: helping people secure paid work and improving physical and mental health, reducing homelessness and easing our chronic shortage of affordable housing, and reducing Australia’s carbon footprint, giving households on low incomes – including those in rented accommodation – opportunities to save on energy bills.

ACOSS view

We want the Government to split the Tax Cut Package legislation, so that each stage can be considered separately. We only want the Parliament to pass ‘Stage 1’, which Labor has already agreed to pass.

The government should open up a dialogue with the community on other actions to restore growth in incomes and spending across the economy, and to make sure no one is left behind, including:

• A $75 a week increase in Newstart and related payments for single people
• Timely and well-crafted investment in public infrastructure, including social housing
• Support and incentives for the energy sector and households to improve energy efficiency and invest in renewables.